How to make this sharp circle edge rounded?
The bevel tool is what you need but won't work properly on your model because the top of the tube lacks edges to join the vertical edges on the outside and inside of the tube. See the picture below.
To get them there, delete the polygon at the top of the tube, then select the inside circle (click on an edge with alt held down) then hold shift down while selecting the outside circle. Then bridge the edge loops. (You can press W and choose Bridge Edge Loops from the menu.)
Edit - have tried to help with the wrong edge - didn't read your question properly.
Using the Bevel tool - press Control B, then, without pressing a mouse button, move the mouse around until it starts to do something to the edge - you might need to move back and forth a bit - when you get something that looks like what you want, Left Click. If you want to use numbers or fine tune - left click then go into a Bevel menu - see bottom of workspace and click on down arrow to open menu.